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N.S. government spending outside budget process loses millions in interest: auditor

HALIFAX — Nova Scotia's auditor general says the province's spending outside the regular budget process lacks oversight and is costing the government millions of dollars in interest.

In a report released Tuesday, Kim Adair reiterated her criticism of the province's controversial habit of spending unexpected budget surpluses without approval from the legislature.

"It's large dollars we're talking about … There are all kinds of missing checks and balances as to whether the money will go to the intended purpose," she told reporters later in the day.

Extra-budget spending granted 11 recipients a total of $430 million in the 2021-22 and 2022-23 fiscal years before projects were underway, rather than as expenses were incurred, her audit showed. It also said much of the grant money was in recipients' bank accounts, and as a result the province lost out on about $19 million in annual interest.

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The audit involved a random sampling of $2.6 billion of government spending outside of the normal budgeting process for those two fiscal years.

The auditor general said she can't explain the motivations for the hasty spending practices of the Tory government — which titled its 2024-25 budget "Building Nova Scotia Faster." However, she noted that much of the spending occurred toward the end of the fiscal year, during what some members of the legislature refer to as "March madness" because of the rapidity with which money leaves government coffers.

Normally, spending proposals go through staff assessments before reaching cabinet. "But for all of the 11 (grants and subsidies) we tested, there were no staff assessments, and our understanding was this was because the proposals were going through very quickly," Adair said.

The grants include $190 million to EfficiencyOne, a non-profit that helps Nova Scotians conserve energy and shift off fossil fuels; about $59 million for a medical school campus at Cape Breton University; and $37 million for St. Francis Xavier University's health education buildings.

Typically, Adair said, governments in Canada provide funding in multiple stages, at various points throughout the duration of a project. "The money is not (given) at the front end … far in advance of it being needed."

Adair also noted that $62.4 million in health-care grants to universities was provided without prior cost estimates; $15 million went to fruit growers that lost crops because of a sudden bout of extreme weather, without the government knowing the extent of the damage; and $13 million went to the Halifax airport despite it having $17.6 million in unused government money in its coffers at the time.

Adair recommended — for the third time — that the government follow other provinces and require all spending to be subject to a vote in the legislature.

And once again, Premier Tim Houston's government on Tuesday rejected the recommendation. Houston has said there is adequate oversight of spending and that quarterly budget updates inform the public.

In the legislature, Finance Minister Allan MacMaster defended his government's decision to transfer money to grant recipients upfront and allow them to retain the interest. “We would expect the organizations in receipt of that money to put interest revenues toward the initiatives that they’ve been approved to put forth on behalf of the government," the minister said.

With the rapidly rising costs of construction, recipients can use the interest to handle extra expenses, MacMaster said.

He also defended the upfront funding for EfficiencyOne, saying it's possible there could be a rapid uptake in its programs, which would quickly draw down the funds provided.

However, opposition parties say the steady drumbeat of audits from Adair's office shows that the Progressive Conservatives are reckless with public money.

For example, on Feb. 13, the auditor general released a report concluding that a $34.5-million purchase of an unfinished hotel for conversion into a health facility was an “unusual arrangement” that lacked appropriate due diligence. Adair said the government had failed to assess other superior, cheaper solutions.

In report released in December, Adair noted $257 million of extra spending — rushed out the door in March 2023 — was provided to nurses to encourage them to stay in their jobs or return to work. The province had anticipated between 1,500 and 2,000 nurses would accept the $10,000 payment; however, only 148 did.

This report by The Canadian Press was first published March 5, 2024.

Michael Tutton, The Canadian Press